One of the questions I often get asked a lot is “Brian, will this home close with an FHA loan because of the condition it is in?” “Will it pass conventional financing requirements?”
People ask this because there is something wrong with one of the properties they are interested in owning. They really want the house and they do start to worry.
Examples are wood rot, or a bad roof, or missing flooring that the sellers won’t fix. People get worried and think they better move to conventional financing because FHA financing requirements won’t allow for it.
My answer is “If there is a problem for one, there will be a problem for all of them.”
I explain the different factors for example FHA only requires 2 years of life left on a roof, a conventional loan requires 3 years. FHA requirements are more stringent.
No lenders require appliances, if they are in they have to work. If they don’t work they should be removed and the wires capped.
Back to my getting asked this question a lot and concerned buyers that know it won’t pass, and this is when I talk to them about escrow holdback.
Escrow holdback is not a lending guideline, it is not a program, not a Freddie or Fannie or FHA, it is none of those. What is it? Well, it is an individual lender saying to their buyer “Listen buyer we will close the loan for you non-compliant with FHA rules or Fannie Mae rules. We will do this as a favor to you.
Let’s use flooring as an example. I tell them they need to get two bids. We put 150% of the highest bid in escrow at closing of your funds on top of the cash to close for the closing so yes this means you have to bring more cash to the table. We are going to close non-compliant with lending guidelines for property requirements. The contractor is going to go out and fix it, provide us with the invoice that it is done, and we will send the appraiser to reinspect and when the appraiser signs off on the work, we will disburse the funds and the rest of the money goes back to you, the buyer.
We will hold the escrow money instead of the title company. Since this is not a lending program, some lenders will not do this at all. Some will do 1 item up to $2000, some do 3 items up to $5,000, we do 4 items up to $10,000.
The only way we can do an escrow holdback is if the appraiser notates that the property has deficiencies and does not meet financing requirements.
Pick up the phone, give me a call, I will be happy to talk to you in person about this. You can reach me at 813-361-6350.